Weekly Wrap 7 August

Bell Direct
August 7, 2020

The Aussie share market rose 1.9% Monday to Thursday marking the first rise in 3 weeks, with the Aussie share market re-entering a risk-on environment.

In this week’s wrap, Paulina covers:

  • (0:22) The Materials and Energy sectors outperform
  • (0:32) Stock watch: Incitec Pivot (ASX:IPL) climbs 16%, Resmed (ASX:RMD) falls 8%
  • (2:02) The week ahead: Business & consumer confidence, and unemployment figures
  • (2:40) Reporting season: CSL & CBA report next week
Read Transcript

Weekly to the Weekly Wrap for Friday the 7th of August.

I’m Paulina Peters, a market analyst with Bell Direct, covering for Jess today.

Well, the Aussie share market rose 1.9% to Thursday, marking the first rise in three weeks.

That saw the ASX200 recover from a two-month low, and pop to a two-week high.

In a typical risk-on environment, Materials and Energy have outperformed, while Financials have dragged, and Real Estate has underperformed.

Looking at two noteworthy stocks, Incitec Pivot (ASX:IPL), the fertiliser and explosive maker, its shares rose 16%, hitting a two-month high.

IPL advised that its fertiliser businesses, which generate 32% of its business revenue, is set to see a kick after 1) the phosphate market is now seeing prices claw off the market bottom, and 2) IPL’s fertiliser business is also set to benefit from favourable weather conditions.

As for IPL’s explosive business, its customers include BHP (ASX:BHP), RIO Tinto (ASX:RIO) and Fortescue Metals (ASX:FMG). IPL is paved out for a long runway of further growth in FY21.

Citi maintained IPL as a buy with a $2.40 price target.

On the flip side, ResMed (ASX:RMD) its shares underperformed, hitting a 7-week low, falling 8%, after reporting its net operational profit grew 40% in FY20, while revenue grew much less than expected.

Reports swirled that ventilator demand had peaked, and Citi forecasted sales to fall in FY21 with its future being difficult to predict. Amid the uncertainty in its ventilators and sleep business, RMD didn’t give guidance for FY21.

Regardless RMD shares are tracking 17% up this year, greatly outperforming the market.

Citi says RMD is a hold with a $27 price target.

Moving to what to watch next week.

Firstly, on the economic side, business confidence and consumer confidence numbers are out Tuesday and Wednesday, with marginal improvements expected, while the focus will be on how much activity has been impacted by Victoria’s stage four lockdowns.

On Thursday unemployment data is expected to worsen from 7.4% in June with Citi expecting the rate to rise to 9.4% in the fourth quarter.

So keep an eye on banking and consumer lending stocks as well as consumer spending stocks.

Secondly, the big news item, Reporting season, shifts into gear next week.

The two biggest companies on the ASX, CSL (ASX:CSL) and CBA (ASX:CBA), report financial year results on Wednesday.

For CBA, the biggest of the big four banks, it’s expected to report an improved fourth quarter result after announcing write downs in the previous quarter.

The focus will be on the impact of Victoria’s lockdown, and losses associated with that, which have not yet been foretold.

Nevertheless, full year cash net profit after tax of $7.65 billion is expected. CBA’s final dividend is tipped to be 20 cents fully franked (implying a 50% payout ratio in FY20), according to Bell Potter.

That a 3% dividend yield. Citi is more bullish, expecting a 50-cent final dividend.

CBA is a Bell Potter buy with a $78 price target. Citi and UBS have CBA as a hold.

As for CSL , the biggest company on the ASX.

The world’s leading biotherapeutics company is expected to reveal the impact of the pandemic, with a total net profit of US$2.11 billion in FY20.

The key will be to watch how much its blood-plasma business has been affected by COVID-19, in terms of collections, and how that will impact plasma availability and costs in FY21.

We know from prior announcements, earnings have slowed, and to be specific, Citi expects a 8% drop in FY21 earnings. CSL is a Bell Potter and Citi buy with a $334 price target.

UBS also has CSL as a buy with a $320 target.

Other large and tightly held stocks to watch include, fund manager Magellan Financial Group (MFG) which is expected to report a $429.3m profit following a rise in inflows.

MFG is a Citi and UBS hold, with a price target of $66 and $56.70 respectively.

And Telstra (ASX:TLS) reports on Thursday.

We know the market is littered with companies in the ‘no guidance club’, but Telstra maintained it will hit its FY20 earnings, albeit at the lower end.

The market expects NPAT of $2.1 billion. TLS is a UBS buy, with a price target of $3.70.

Morningstar says fair value is $4.70.

And remember, when looking at results, the market is watching to see if the financial results are better or weaker than expected, which generally determines if the company’s shares will rally or fall.

Meaning if there are good surprises, expect their shares to gallop.

If there are some not so great results- expect the company’s shares to fall.

For a list of all the major companies reporting, check out our new interactive reporting season calendar.

We’ll pop a link in the description of this video so you can access it.

On behalf of everyone at Bell Direct have a happy and safe weekend.

I’m Paulina Peters, see you next week.

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